Exercise 22-7 Departmental contribution report LO P3

Below are departmental income statements for a guitar manufacturer. The manufacturer is considering eliminating its electric guitar department since it has a net loss. The company classifies advertising, rent, and utilities expenses as indirect.

WHOLESALE GUITARS Departmental Income Statements For Year Ended December 31, 2017
	Acoustic			Electric
Sales	$	102,600		$	84,700
Cost of goods sold		44,275			47,650
Gross profit		58,325			37,050
Operating expenses
Advertising expense		5,045			4,330
Depreciation expenseequipment		10,140			8,600
Salaries expense		20,000			17,300
Supplies expense		1,960			1,710
Rent expense		7,065			6,020
Utilities expense		2,975			2,550
Total operating expenses		47,185			40,510
Net income (loss)	$	11,140		$	(3,460	)

1. Prepare a departmental contribution report that shows each departments contribution to overhead.

2. Based on contribution to overhead, should the electric guitar department be eliminated?

• No

• Yes

Income Statement Showing Departmental Contribution to Overhead For Year Ended December 31, 2017 Acoustic Dept. Electric Dept. Combined Direct expenses Total direct expenses 0 0 0 Departmental contributions to overhead 0 Indirect expenses Total indirect expenses 0 0